Monday, September 10, 2012

Obama, Geithner and "No Banker Left Behind"

I've just now caught up with Noam Scheiber's The Escape Artists and it is just as good as the reviewers say it was (for one of the best, go here). For crisp and coherent accounts of difficult economic concepts, this guy really is way above the common ruck. But he brings me back to a favorite theme of mine: that Obama and his ilk are way too deferential to Wall Street.

I've taken some heat for that one before from some of my friends who say no no, one of Obama's great virtues is that he is not part of the Wall Street cabal. Wall of course, he is not. But is that a virtue? The more I see of him, the more I sense that Obama, whatever his virtues (many) and his intentions (good) simply does not have a feel for the way markets work. It's precisely the reason why he is far too much at risk of being mesmerized by those who (sound like they) know better.

But next, direct the spotlight to Tim Geithner. Per Scheiber, Obama and Geithner are genuinely sympatico. But the terrible truth is that Geithner suffers from another strand of Obama's own hypnotizing virus. Recall that Geithner's great claim to fame is that he has never worked for "a bank" ("Federal Reserve Bank of New York," ironically, does not count). Well yes, but one corollary of never having worked for a bank is that Geithner feels himself totally dependent on banks for his street credit. Read a few pages of Scheiber and you get the feeling that this guy doesn't blow his nose unless he decides it will play well on Wall Street.

Plug in Larry Summers as chairman of the National Economic Council and you have somebody whose role is more complicated and perhaps easier to misunderstand. The vulgar (that would be me) would think--oh, Summers, he's sold out for the big consulting fees, he is just another shill for his corporate masters. Per Scheiber, there is a large kernel of truth in that, but the back story is more complicated. It's not solely that he's a corporate tool (heh). The thing is, in a more general way he just wants to make sure he has a place at the power table--you get the sense he might have behaved much as he did were he buttering up to Joseph Stigliz, rather than Robert Rubin. It's Summers who get to pass on economic advise to the inner circle. In Scheiber's telling, "pass on" means that Summers gets to listen to the great advocate of "more help for Main Street" Christina Romer, in her role as chair of the Council of Economic Advisers. At the start, Summers agrees with her (Are you surprised? One surmises that Romer may have been surprised). But then Summers, no slouch at bureaucratic intrigue, puts Romer on ice (or more crudely, "shoves her out onto the ice floe"). Had he changed his views? Evidently not on substance; but it appears he had made a judgment as to what would win, and he was afraid that if he stuck with (what he perceived to be) the loser, he would lose his street cred.

It seems that Summers' decision set the stage for a tragic misunderstanding. Evidently Rahm Emanuel, still the chief of staff, figured the political decision was his, subject to input on the economics from Summers. But by the time it got to Rahm's desk, a political decision had already been made: Rahm just didn't know it.

So the winners here turn out to be Geithner, though he may not have known how or why, and Summers, for reasons of his own. Romer it seems, no matter how competent an economist, was not Summers' match at intrigue. And Obama--and, ironically, Mr. Steeetwise himself, Emanuel--apparently didn't even know that they had been rolled.

There is an added irony here, way beyond the scope of Scheiber's book. That is: I have no idea how good Romney is at bureaucratic intrigue (not very good, I suspect)--still when it comes to not being mesmerized by big money, he is probably far better equipped than Obama. He's been dealing with these guys all his life and he seems to have taken them to the cleaners more than once. Is this reason enough to dump Obama for Romney? IMO, not by a long shot. Far better a serious but mediocre president, than a slapdash moneygrubber in thrall to a zoo full of knuckle dusters. But it does make the point that politics, as well as being a dirty business, is also complicated.

1 comment:

"No no, one of Obama's great virtues is that he is not part of the Wall Street cabal."

You have very strange friends. The man who put Larry Summers and Tim Geithner in charge of the henhouse (not to mention reinstalling my old boss, Lee Sachs, as one of the major Undersecretaries)?

The Wall Street CABAL should be very happy with Mr. Obama. (The hedgies know that there is a slight but greater-than-zero chance that they will lose the b.s. "carried interest" under Obama, while his opponent would do nothing. There is nothing like risk-free arbitrage at the tail.)